3 Dividend Growth Stocks to Buy and Hold
Income investors don’t have to settle for dividends that tread water. There are plenty of stocks to buy that offer growing dividends and are poised to keep the momentum going along with attractive dividend yields.
Three Motley Fool contributors think they’ve found ideal dividend growth stocks to buy and hold. Here’s why they picked AbbVie (NYSE: ABBV), Amgen (NASDAQ: AMGN), and Gilead Sciences (NASDAQ: GILD).
Keeping a 52-year streak going
Keith Speights (AbbVie): There aren’t many stocks on the market with a more impressive dividend program than AbbVie. This big drugmaker is a Dividend King with 52 consecutive years of dividend increases. I fully expect AbbVie to keep that streak going.
Some Dividend Kings’ dividend yields are pitifully low. That’s not the case with AbbVie; the company’s yield stands at nearly 3.7%.
Income investors have even more to like with this stock. AbbVie’s revenue and earnings have fallen recently due to biosimilar competition for the company’s top-selling autoimmune disease drug, Humira. However, robust growth should be on the way soon.
Sales for Humira’s two successors, Rinvoq and Skyrizi, continue to soar. AbbVie expects the two drugs will generate combined revenue in 2027 of more than $27 billion. That’s well above Humira’s peak annual sales of about $21 billion.
AbbVie’s 2020 acquisition of Allergan is still paying off with sales for the antipsychotic drug Vraylar jumping nearly 24% in Q1 while migraine drugs Ubrelvy and Qulipta soared 34% and 98%, respectively.
Speaking of acquisitions, AbbVie’s recent buyout of Immunogen is likely to fuel further growth. The launch of ImmunoGen’s lead cancer therapy, Elahere, is already off to a good start.
Last, but not least, AbbVie is reasonably valued. Its shares trade at only 15 times forward earnings.
More than a dividend stock
Prosper Junior Bakiny (Amgen): In the past three years, Amgen has performed better than the broader market despite its less-than-impressive organic sales growth. The biotech has dealt with stiff competition (biosimilar and otherwise) for some of its products and newer medicines — such as cancer drug Lumkras and asthma therapy Tezspire — not performing as well as hoped. Given these issues, why does the market continue to reward Amgen?
First, the drugmaker still has a solid underlying business. Earnings and free cash flow are generally consistent. Second, Amgen remains an innovative drugmaker with a deep and promising pipeline of potential drugs. The company’s most exciting target right now is the anti-obesity market. It boasts arguably one of the more promising phase 2 assets in this incredibly fast-growing field in MariTide.
Story continues
Third, there is Amgen’s dividend record. In the past three years, the company’s payouts have increased by 28%, and in the past 10 years, they have increased a whopping 269%. Amgen offers a forward yield of 2.8%, a reasonably competitive figure given the 1.3% average of the S&P 500. Its cash payout ratio of about 65% looks a little high, but I wouldn’t worry. The biotech is committed to maintaining a strong dividend program.
But as we’ve seen, there is more to the company. Amgen should be able to land significant breakthroughs and deliver stronger top-line growth than it has in recent years, leading to even more competitive returns. It’s an excellent dividend growth stock to buy. It is also a reliable stock for long-term, growth-oriented biotech investors.
Gilead’s business is growing and so is its dividend
David Jagielski (Gilead Sciences): Gilead Sciences is an underrated dividend stock. It pays a high yield, has a stable and growing business, and has room to fund more rate hikes. Year to date, Gilead Sciences stock is down more than 14% as it has been a laggard in what’s been a generally strong year for the markets, with the S&P 500 up 19% thus far in 2024.
For bargain hunters, this could be a prime opportunity to invest in a top dividend growth stock. Currently, Gilead’s stock pays a 4.6% yield, which is more than triple the S&P 500 average of 1.3%. While it doesn’t have a dividend growth streak that spans decades, Gilead has the potential to be a solid long-term income stock.
In five years, it has increased its dividend payments by 22%, averaging a compound annual growth rate of just over 4%. That’s a decent, sustainable rate of increase that doesn’t create too much of a burden for the business to maintain. And during the trailing 12 months, Gilead has generated free cash flow of $7.9 billion, which is more than twice the $3.8 billion it pays out per year in dividends. There’s ample room for the company to increase its dividend while also investing in its existing operations.
The company, whose operations center around HIV treatments, has been expanding its oncology and liver disease segments. Those products generated 18% and 9% revenue growth during the first three months of the year, respectively, versus a more modest growth rate of 4% in HIV products.
With a lot more room still to grow, Gilead possesses some promising long-term potential, and it’s a great value buy. Currently, the healthcare stock trades at a forward price-to-earnings multiple of 17.
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David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in AbbVie. Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Gilead Sciences. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.
3 Dividend Growth Stocks to Buy and Hold was originally published by The Motley Fool
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